Tuesday, May 24, 2005

Fed Speak, markets listen

Reading FOMC minutes is enough to grow mold on one's eyeballs, but here it is:
* growth of economic activity had unexpectedly moderated during the first quarter
* Gains [in industrial production] were restrained by a decline in manufacturing output, particularly for motor vehicles and parts
* Measures of consumer confidence declined in the early months of the year
* Economic indicators for major foreign industrial countries suggested some slowing of growth late in the quarter after a pickup earlier in the year. [Translation: the world economy isn't doing so well either.]
* The growth of M2 continued to be restrained by increases in its opportunity cost resulting from rising short-term interest rates. [Translation: Money is being moved from cash + time deposits into fixed assets/long-term investments.]
* participants noted that far-dated futures prices for oil remained quite elevated [Translation: The Fed thinks cheap oil is our birthright.]
* Fiscal policy was expected to provide a more moderate impetus to growth this year and next [Translation: Congress will cut spending.]
* rising energy prices seemed to have spurred an increase in core measures of inflation [Translation: rising gas prices affect business as well as consumers.]
Here's the nut paragraph: "In these circumstances, the Committee believed that policy accommodation could be removed at a pace that would likely be measured but noted that it would respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." [Translation: expect a quarter point rise in rates, maybe two.]
Lo and behold: "In the Committee's discussion of monetary policy for the intermeeting period, all members favored raising the target federal funds rate 25 basis points to 3 percent at this meeting."
These people could learn how to write.

Please consider these aid agencies for donations to help the victims of Hurricane Katrina, as well as the victims of the Indian Ocean tsunamis. Mercury Rising is not affiliated with any of these organizations, nor can we directly vouch for them.